ECB paper questions true decentralization of major DeFi DAOs

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ECB paper questions

Highlights

ECB paper finds high concentration in major DeFi DAO governance
Top token holders control over 80% in leading protocols
Findings may push regulators to tighten DeFi oversight

Insufficient decentralization and hidden control

The European Union’s Markets in Crypto-Assets (MiCA) regulation currently excludes “fully decentralized” services from its scope. However, authors of the ECB working paper published on March 26 conclude that the largest decentralized autonomous organizations (DAOs) in the DeFi sector are highly concentrated, making it difficult to determine who should fall under MiCA supervision.

The paper examines Aave, MakerDAO, Ampleforth, and Uniswap, finding that although governance tokens are distributed across tens of thousands of addresses, the top 100 holders control more than 80% of the supply in each protocol.

Based on token ownership data from November 2022 and May 2023, the authors found that a significant portion of governance tokens may be linked either to the protocols themselves or to centralized and decentralized exchanges, with Binance identified as the largest centralized holder across all four protocols.

The study also analyzed who actually votes on key proposals and found that voting power is largely concentrated among delegates who receive voting rights from smaller token holders.

As a result, the top 20 voters in Ampleforth control 96% of delegated voting power, while the top 10 voters in MakerDAO hold 66%, and the top 18 in Uniswap control 52%.

Around one-third of the largest voters cannot be publicly identified. Among those who can be identified, the largest groups include private individuals and Web3 companies, followed by university blockchain communities and venture capital firms.

The authors conclude that these findings challenge the notion that DAOs are sufficiently decentralized and raise questions about accountability, particularly in intermediary cases where regulation remains unclear.

In some instances, these structures may represent disguised forms of concentration and governance risks that resemble—or even exceed—those seen in traditional finance.

Implications for DeFi regulation

The ECB paper raises a broader question: to what extent does formal decentralization reflect actual power distribution? If voting control is concentrated among a small group of delegates and large holders, regulators may begin to treat DAOs not as neutral infrastructure but as entities with identifiable centers of influence.

As a result, some DeFi projects may need to either strengthen genuine decentralization—through vote dispersion, anti-whale mechanisms, and delegate transparency—or adapt to regulatory frameworks closer to traditional financial institutions.

From an investment perspective, this may trigger a reassessment of governance token risks. Tokens once viewed as tools for decentralized participation could increasingly be evaluated through the lens of regulatory pressure and centralization risks.

This trend may also accelerate the development of new governance models, such as quadratic voting, reputation-based systems, or limits on vote concentration, as DeFi seeks to maintain its decentralized status.

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